Agreements
Bank of America admits to 'dollar rolling' $10 billion in debt
Bank of America Corp. has admitted to maneuvering as much as $10.7 billion in debt from its balance sheet and then back again through repurchasing deals that the bank called "dollar rolls."
The deals involved short-term agreements in which the bank would move mortgage-backed securities off its books to another entity, while agreeing to repurchase the package at a later date -- usually after it had reported its quarterly financial statement to the Securities and Exchange Commission.
In a letter responding to questions from the SEC, the bank admitted it wrongly classified the moves as "sales" when they were really a form of secured borrowing.
Critics have said it was an effort by the bank to hide the extent of its investments in risky mortgage securities. A bank spokesman did not immediately reply to messages seeking comment.
The letter listed four instances of dollar rolling, all at the end of a quarter: March 31, 2009, for $573 million; Sept. 30, 2008, for $10.7 billion; Dec. 31, 2007, for $1.8 billion; and March 31, 2007, for $4.5 billion.
In its letter, the bank said its actions were not "from any intentional misstatement" and were not related to "any fraud or deliberate error."
Yet it offered a murky explanation for how they happened. The "dollar rolls were entered into by the business with the intent to reduce the specific business unit's balance sheet to meet its internal quarter end limits for balance sheet utilization capacity," the letter said.
The company admitted the dollar rolling was a "mistake," but insisted it was not a material error that would require restating its finances.
The letter, written May 13 but publicly filed last Friday, said the Charlotte, N.C.-based bank has beefed up its compliance and internal controls to avoid similar mistakes in the future.
The bank's corporate controller wrote the letter and copied several bank finance executives, along with general counsel Edward O'Keefe. The general counsel didn't return calls for comment about the new compliance measures.
Both the SEC's original letter and the bank's reply show that regulators are concerned about the lender's transparency. At least four questions from regulators dealt with disclosure issues, including why the bank believed the errors weren't material, and why it didn't disclose accounting changes and compliance reforms.
For the most part, the company replied that it was not required to disclose certain facts because they were not "material" to the bank's ultimate bottom-line.
(Published by Law.com – July 13, 2010)